Credit Score

The Private Mortgage Banking Group uses credit scoring to help determine whether to provide credit to clients. Creditors such as PMBG use credit scoring because it is based on real data and statistics; it usually is more reliable than subjective or judgmental methods. Credit scoring can help make loan decisions faster, more accurately, and more impartially than individuals. Our decision to provide credit to a client does not solely rest with the credit score, however. An underwriter reviews all loan decisions and can choose to extend credit regardless of credit score. PMBG places a high-emphasis on client confidentiality and privacy with all information obtained throughout the loan process.

FICO: How Does It Work?
Information about clients and their credit experiences, such as bill-paying history, the number and type of accounts, late payments, collection actions, outstanding debt, and the age of accounts, is collected from the loan application and client credit report.

The three major credit bureaus use a scoring system developed by Fair, Isaac and Co. called the FICO model. Using a statistical program, the FICO model compares this information to the credit performance of consumers with similar profiles. The FICO model assigns points for each variable that helps predict who is most likely to repay a debt. A total number of points -- a FICO score -- helps predict creditworthiness -- or how likely someone is to repay a loan and make on-time payments.

FICO scores range from 350 to 850 points -- the higher the score, the more credit-worthy the applicant. Fair, Isaac states that the average score falls in the low 700s.

Fair Isaac lists several factors that go into its model, including the following:

• Outstanding debt
• Late payments
• Bankruptcies
• Length of credit history
• Number of new credit applications

To prevent manipulation of the model, Fair, Isaac does not disclose how the model weighs credit factors. Under the Equal Credit Opportunity Act, no credit scoring system may use characteristics like race, sex, marital status, national origin, or religion as factors.

Ways to Improve Your Credit Rating
Pay down your debt. FICO evaluates the amount of debt against credit limits. If the amount owed is close to the credit limit, that could reduce the score. Pay bills on time. Payment history is a significant factor. Client scores will fall with late bill payments, had an account referred to collections, or declared bankruptcy, if that history is reflected on your credit report. Don't take out any new loans. FICO looks at "credit inquiries" -- requests for information from creditors when one applies for credit. If a client has applied for too many new accounts recently, that may negatively affect the score. Nevertheless, not all inquiries are counted. Inquiries by creditors who are monitoring your account or looking at credit reports to make "prescreened" credit offers (such as those "preapproved" credit card direct mail solicitations) are not counted.

Consider canceling excess credit cards. Although FICO positively weighs established credit accounts, too many credit card accounts negatively effects the score.